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It costs a lot less than we are told: erection of a wind turbine at Alltwalis Wind Farm in Wales, set in operation December 2009. Photo: Aslak Øverås / Statkraft via Flickr (CC BY-NC-ND).
It costs a lot less than we are told: erection of a wind turbine at Alltwalis Wind Farm in Wales, set in operation December 2009. Photo: Aslak Øverås / Statkraft via Flickr (CC BY-NC-ND).
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Wind and solar's £1.5 billion electricity price cut

Oliver Tickell

19th October 2015

The effect of wind and solar generation in the UK is to push down wholesale power prices, writes Oliver Tickell, taking over £1.5 billion off our bills in 2014 - that's 58% of the subsidies paid to renewable generators. Keep it up and the benefit will rise to over 100% of cost.

There is a deep systemic problem at the heart of the UK's system for renewable energy support. The more successful renewables are, and the more they are reducing our bills, the more they appear to cost. It could be described as 'designed to fail'.

A new study carried out by Sheffield University shows that wind and solar power saved consumers a massive £1.55 billion in 2014.

And this year it will save us even more money - an estimated £2 billion, according to the researchers.

The saving arises because when wind and or solar power kick in with no minimum price (as they have no fuel cost to pay), the most expensive generation on the grid at the time is pushed off.

And under electricity market rules, that pushes down the wholesale power price across the entire system. This is known as the 'Merit Order Effect' and has also been observed in other countries including Germany.

The result is to more than halve the cost of the support going to renewable generators under the Renewables Obligation (RO) and Feed-in Tariffs (FITs) - by a massive 58%.

In 2014 these support payments cost energy consumers about £2.67 billion. But after subtracting the £1.55 billion benefit in lower prices, the net cost of supporting renewable power generation was only £1.12 billion.

The study was commissioned by leading green energy retailer Good Energy, whose chief executive Juliet Davenport said: "This analysis puts the bill payer at the centre of the debate around renewable energy subsidies. Let's give them the full picture and not just half of it."

Government mission to cut costs is also cutting benefits

Chancellor George Osborne is on a mission to cut the cost of supporting renewable power generation under the 'Levy Control Framework' (LCF). That's the name for the budget allocated to subsidising low carbon energy through the RO, FITs and other mechanisms.

Thanks to the unexpected surge in renewables, the sums paid out under the LCF have increased faster than expected, leading to a projected £1.5 billion 'overspend' in the current financial year.

This is why the government says it has announced a series of massive cuts to renewable energy support. At the same time, they have also imposed a carbon tax, known as the Climate Change Levy, onto renewable energy, while also bringing in planning restrictions on onshore wind farms.

As a result large parts of the once thriving UK renewable energy industry are going bust, costing thousands of jobs - 27,000 are at risk or already lost in the solar sector alone - and wiping out the value of companies that are being forced into liquidation.

However the government does not include the benefit to consumers of the lower wholesale power prices, but only the direct cost of the support, which is added onto energy bills - even though the actual cost to consumers is 58% less than it appears thanks to the lower energy prices.

"What is not taken into account is the fact that renewable energy, such as wind and solar, has actually been bringing the cost of energy down for consumers", commented Davenport. "The bill payer money invested into supporting renewables yields significant benefits, let's be very clear about that."

Renewables - a victim of their own success

Another reason why the LCF budget is being overspent is that the 'top up' payments to renewable power generators increase as the market price of power falls, in order to pay them the price that's guaranteed under FIT and the newly introduced 'Contracts for Difference' (CFDs).

And average wholesale power prices have been declining from a mid-2012 peak of around £50 per MWh (megawatt hour) to under £40 today.

However one of the reasons for the decline is precisely ... the surge in renewable power generation. Solar capacity in the UK has increased from just 96MW in 2010 to over 8,200 MW today. The latest figures show that, in the second quarter of 2015, 25.3% of electricity was generated by wind, solar, hydro and other renewables.

And the greater the success of renewable generators in pushing down the wholesale power price (paid to all generators), and thus the benefit to consumers, the greater the 'headline' cost of the renewable energy subsidies they receive.

In other words there is a deep systemic problem at the heart of the UK's system for renewable energy support. The more successful renewables are, and the more they are reducing our bills, the more they appear to cost. It could be described as 'designed to fail'.

The report also explored the value of the reduction in overall electricity spending achieved for each additional unit of wind or solar generation, concluding that "if current Merit Order Prices are maintained, new large-scale renewable generation will deliver a net benefit to consumers."

So allow renewable energy capacity to keep on growing, and the subsidies paid for renewable energy generation will not just pay 58% of their cost as they do today, but will pay over 100% of their cost, putting more money into our pockets than they take out. How's that for a bargain?

Paul Barwell, Chief Executive of the Solar Trade Association said: "With the Government's consultation on the Feed-in Tariff review closing this week (October 23rd), this report is very timely. This analysis shows that the net effect on bills of supporting new rooftop solar - under the STA's 'Solar Independence Plan for Britain' - is zero.

"The £100m we need added to consumer bills over three years will be completely offset by the savings from solar lowering the wholesale price. This is just the evidence that the Government needs." 

 


 

The report: 'Wind and solar reducing consumer bills An investigation into the Merit Order Effect' is published by Good Energy.

Consultation: DECC's official Consultation on the Feed-in Tariff review closes this Friday 23rd October.

Also on The Ecologist: 'Renewable energy sacrificed on the altar of corporate profit'.

Oliver Tickell edits The Ecologist.

 

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